A note from our editor, Elizabeth MacBride:
The huge shift toward an inflationary economy is a good time to rethink your attitudes about borrowing and investing. My 1980s kitchen badly needs a redo and my house has gone up in value, so I asked my friend Charley Ellis, known as the dean of American financial advisors, whether he thought it was a good idea to take out a home equity line of credit to do so. He reminded me of one of the hidden benefits of inflation: If you borrow money over the long term in inflationary times, you’ll be paying back money that’s worth less over time. To figure out your true cost of borrowing, subtract the inflation rate from your interest rate.
Do we know what the inflation rate will be? No, but it’s been running at 7% a year. And an educated guess is that it’ll be with us for a few years at least. Human beings tend to judge the future by the past, so they’ll count on rising prices for a while.
I have an old-fashioned, middle-class aversion to debt, probably because I feel like it puts me in the power of big institutions. Charley reminded me to think a little more rationally about it: If there’s a clear benefit for your long-term borrowing – for a home investment, higher education, or a business with a clear business model – inflation can lower the cost.
Our attention has shifted remarkably quickly from the pandemic to the war in Ukraine and the economy – and reconnecting with our in-person selves. I understand the impulse, and the roaring 20s, as I never did before. But I also know that the 1918 pandemic brought about important advances in public health infrastructure, so let’s not ignore the lessons of this one.
I interviewed Belinda Oakley, the CEO of Chartwells, for a story on this topic. Chartwells provides school lunches at 4,500 schools around the United States, and turned on a dime during the pandemic to produce those meals to-go I was interested because we all saw, in the long lines of cars at pickup points, how unexpectedly vital school lunches are. This was no doubt obvious to teachers and cafeteria workers, but it shocked me, how many American children are at risk of going hungry.
So maybe one lesson learned from the 2020 pandemic: School lunches should always be free, for everyone. If there are other infrastructure investments that seem obvious, post-pandemic, please share them with me: [email protected]. I’ll write about them soon.